Chapter 5/Elasticity and Its Applications ? 173
28. The main reason for using the midpoint method to calculate an elasticity is that it
a. gives the same answer regardless of whether the price increases or decreases. b. recognizes that prices are usually increasing, not decreasing.
c. rounds prices to the nearest dollar and quantities to the nearest whole unit. d. uses fewer numbers than alternative methods. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Midpoint method MSC: Interpretive 29. Which of the following is not a determinant of the price elasticity of demand for a good?
a. the time horizon
b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
30. The price elasticity of demand for a good measures the willingness of
a. consumers to move away from the good as price rises.
b. consumers to avoid monopolistic markets in favor of competitive markets. c. firms to produce more of a good as price rises. d. firms to cater to the tastes of consumers. ANS: A PTS: 1 DIF: 1 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
31. If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then
a. the demand for the good is said to be elastic. b. the demand for the good is said to be inelastic. c. the law of demand does not apply to the good.
d. the demand curve for the good shifts only slightly in response to a change in price. ANS: B PTS: 1 DIF: 1 REF: 5-1 TOP: Inelastic demand MSC: Definitional 32. The greater the price elasticity of demand, the
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to a change in price. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
33. The value of the price elasticity of demand for a good will be relatively large when
a. there are no good substitutes available for the good. b. the time period in question is relatively short. c. the good is a luxury as opposed to a necessity. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
34. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X
demanded. Price elasticity of demand for X is a. 0. b. 1. c. 6. d. 36. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
174 ? Chapter 5/Elasticity and Its Applications
35. Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded
increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is a. 2.00. b. 1.55. c. 1.00. d. 0.64. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
36. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a
a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
37. If the price elasticity of demand for a good is 1.65, then a 3 percent decrease in price results in a
a. 0.55 percent increase in the quantity demanded. b. 1.82 percent increase in the quantity demanded. c. 4.95 percent increase in the quantity demanded. d. 5.55 percent increase in the quantity demanded. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
38. If the price elasticity of demand for a good is 0.94, then which of the following events is consistent with a 4 percent
decrease in the quantity of the good demanded? a. a 0.235 percent increase in the price of the good b. a 2.350 percent increase in the price of the good c. a 3.760 percent increase in the price of the good d. a 4.255 percent increase in the price of the good ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
39. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.78. Which
of the following events is consistent with a 4.68 percent decrease in the quantity of the good demanded? a. a 3.65 increase in the price of the good
b. a 16.67 percent increase in the price of the good
c. an increase in the price of the good from $48.00 to $50.97 d. an increase in the price of the good from $65.00 to $66.98 ANS: C PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
40. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 1.5. Which of
the following events is consistent with a 3.5 percent increase in the price of the good? a. The quantity of the good demanded decreases from 25,294 to 24,000. b. The quantity of the good demanded decreases from 50,000 to 48,847. c. The quantity of the good demanded decreases by 2.33 percent. d. The quantity of the good demanded decreases by 4.29 percent. ANS: A PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
41. The midpoint method for calculating elasticities is convenient in that it allows us to
a. ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. b. calculate the same value for the elasticity, regardless of whether the price increases or decreases. c. assume that sellers' total revenue stays constant when the price changes. d. restrict all elasticity values to between 0 and 1. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Midpoint method MSC: Interpretive
Chapter 5/Elasticity and Its Applications ? 175
42. The price elasticity of demand for bread
a. is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of
bread.
b. depends, in part, on the availability of close substitutes for bread.
c. reflects the many economic, social, and psychological forces that influence consumers' tastes for bread. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
43. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity
demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.22. b. 0.67. c. 1.33. d. 1.50. ANS: B PTS: 1 DIF: 1 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
44. Consider airfares on flights between New York and Minneapolis. When the airfare is $250, the quantity demanded of
tickets is 2,000 per week. When the airfare is $280, the quantity demanded of tickets is 1,700 per week. Using the midpoint method,
a. the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to
decrease.
b. the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to
increase.
c. the price elasticity of demand is about 0.70 and an increase in the airfare will cause airlines' total revenue to
decrease.
d. the price elasticity of demand is about 0.70 and an increase in the airfare will cause airlines' total revenue to
increase.
ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand | Total revenue MSC: Applicative 45. For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the
following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a luxury.
c. The market for the good is broadly defined. d. The relevant time horizon is short. ANS: B PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Analytical
46. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the
following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a necessity.
c. The market for the good is broadly defined. d. There are many close substitutes for this good. ANS: D PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Analytical 47. Demand is elastic if elasticity is
a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1. ANS: D PTS: 1 DIF: 1 TOP: Elastic demand MSC:
REF: 5-1
Definitional
176 ? Chapter 5/Elasticity and Its Applications
48. Demand is inelastic if elasticity is
a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0. ANS: A PTS: 1 DIF: 1 TOP: Inelastic demand MSC:
REF: 5-1
Definitional
49. Demand is said to have unit elasticity if elasticity is
a. less than 1. b. greater than 1. c. equal to 1. d. equal to 0. ANS: C PTS: 1 DIF: 1 REF: 5-1 TOP: Price elasticity of demand MSC: Definitional
Figure 5-1 50. Refer to Figure 5-1. The section of the demand curve labeled A represents the
a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve.
d. perfectly elastic section of the demand curve. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Elastic demand MSC: Interpretive
51. Refer to Figure 5-1. Suppose the point labeled B is the “halfway point” on the demand curve and it corresponds to a
price of $5.00. Then, between prices of $4.90 and $5.10, a. the price elasticity of demand is less than 1. b. the price elasticity of demand is equal to 1. c. the price elasticity of demand is greater than 1.
d. any of the above could be correct, depending on the quantities demanded at prices of $4.90 and $5.10. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
52. Refer to Figure 5-1. The section of the demand curve labeled C represents the
a. elastic section of the demand curve.
b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Inelastic demand MSC: Interpretive
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